[Congressional Record Volume 146, Number 141 (Tuesday, October 31, 2000)]
[Senate]
[Pages S11437-S11442]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                               BANKRUPTCY

  Mr. GRASSLEY. We have had a good discussion on the bankruptcy bill. 
We will have further discussion postcloture. I think we have a good 
product. This conference report is basically the Senate-passed 
bankruptcy bill with certain minimal changes made to accommodate the 
House of Representatives. The means test retains the essential 
flexibility that we passed in the Senate. The new consumer protections 
sponsored by Senator Reed of Rhode Island relating to reaffirmation is 
in our conference report before the Senate. The credit card disclosure 
sponsored by Senator Torricelli is also in this final conference 
report. We also maintain Senator Leahy's special protections for 
victims of domestic violence and Senator Feingold's special protections 
for expenses associated with caring for nondependent family members.
  I think it is pretty clear that on the consumer bankruptcy side, we 
maintain the Senate's position. Anybody who says otherwise has not read 
the conference report.
  It is also important to realize how much of an improvement this 
legislation is for child support claims. The organizations that 
specialize in tracking down deadbeat fathers think this bill will be a 
tremendous help in collecting child support.
  I have a letter I am going to ask to have printed in the Record from 
Mr. Philip Strauss of the Family Support Bureau of the San Francisco 
district attorney's office. Mr. Strauss notes that professional 
organizations of people who actually collect child support

       . . . have endorsed the child support provisions of the 
     Bankruptcy Reform Act as crucially needed modifications of 
     the Bankruptcy Code, which will significantly improve the 
     collection of support during bankruptcy.

  There you have it. According to people in the front lines, the 
bankruptcy bill is good for collecting child support. So I say to my 
colleagues, if you have concerns about child support, look at this 
letter.
  I ask unanimous consent to have it printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                          District Attorney Family


                                               Support Bureau,

                            San Francisco, CA, September 14, 1999.
     Re S. 625 [Bankruptcy Reform Act].

       Dear Senators: I am writing this letter in response to the 
     July 14, 1999 letter prepared

[[Page S11438]]

     by the National Women's Law Center. That letter asserts in 
     conclusory terms that the Bankruptcy Reform Act would put 
     women and children support creditors at greater risk than 
     they are under current bankruptcy law. The letter ends with 
     the endorsement of numerous women's organizations.
       I have been engaged in the profession of collecting child 
     support for the past 27 years in the Office of the District 
     Attorney of San Francisco, Family Support Bureau. I have 
     practiced and taught bankruptcy law for the past ten years. I 
     participated in the drafting of the child support provisions 
     in the House version of bankruptcy reform and testified on 
     those provisions before the House Subcommittee on Commercial 
     and Administrative Law this year.
       I believe it is important to point out that none of the 
     organizations opposing this legislation which are listed in 
     the July 14th letter actually engages in the collection of 
     support. On the other hand, the largest professional 
     organizations which perform this function have endorsed the 
     child support provisions of the Bankruptcy Reform Act as 
     crucially needed modifications of the Bankruptcy Code which 
     will significantly improve the collection of support during 
     bankruptcy. These organizations include:
       1. The National Child Support Enforcement Association.
       2. The National District Attorneys Association.
       3. The National Association of Attorneys General.
       4. The Western Interstate Child Support Enforcement 
     Council.
       The thrust of the criticism made by the National Women's 
     Law Center is that by not discharging certain debts owed to 
     credit and finance companies, the institutions would be in 
     competition with women and children for scarce resources of 
     the debtor and that the bill fails ``to insure that support 
     payments will come first.'' They say that the ``bill does not 
     ensure that, in this intensified competition for the debtor's 
     limited resources, parents and children owed support will 
     prevail over the sophisticated collection departments of 
     these powerful interests.''
       With all due respect, nothing could be further from the 
     truth. While the argument is superficially plausible, it 
     ignores the reality of the mechanisms actually available 
     for collection of domestic support obligations in contrast 
     with those available for non-support debts.
       Absent the filing of the bankruptcy case, no professional 
     support collector considers the existence of a debt to a 
     financial institution as posing a significant obstacle to the 
     collection of the support debt. The reason is simple: the 
     tools available to collect support debts outside of the 
     bankruptcy process are vastly superior to those available to 
     financial institutions and, in the majority of cases, take 
     priority over the collection of non-support debts.
       More than half of all child support is collected by 
     earnings withholding. Under federal law such procedures have 
     priority over any other garnishments of the debtor's salary 
     or wages and can take as much as 65% of such salary or wages. 
     By contrast the Consumer Credit Act prevents non-support 
     creditors from enforcing their debts by garnishing more that 
     twenty-five percent of the debtor's salary.
       In addition, there are many other techniques that are only 
     made available to support creditors and not to those 
     ``sophisticated collection departments of . . . [those] 
     powerful interests:'' These include:
       1. Interception of state and federal tax refunds to pay 
     child support arrears.
       2. Garnishment or interception of Workers' Compensation or 
     Unemployment Insurance Benefits.
       3. Free or low cost collection services provided by the 
     government.
       4. Use of interstate processes to collect support 
     arrearage, including interstate earnings withholding orders 
     and interstate real estate support liens.
       5. License revocation for support delinquents.
       6. Criminal prosecution and contempt procedures for failing 
     to pay support debts.
       7. Federal prosecution for nonpayment of support and 
     federal collection of support debts.
       8. Denial of passports to support debtors.
       9. Automatic treatment of support debts as judgments which 
     are collectible under state judgment laws, including 
     garnishment, execution, and real and personal property liens.
       10. Collection of support debts from exempt assets.
       11. The right of support creditors or their representatives 
     to appear in any bankruptcy court without the payment of 
     filing fees or the requirements of formal admission.
       While the above list is not exhaustive, it is illustrative 
     of the numerous advantages given to support creditors over 
     other creditors. And while all of these advantages may not 
     ultimately guarantee that support will be collected, they 
     profoundly undermine the assumption of the National Women's 
     Law Center that the mere existence of financial institution 
     debt will somehow put support creditors at a disadvantage. To 
     put it otherwise, support may sometimes be difficult to 
     collect, but collection of support debt does not become more 
     difficult simply because financial institutions also seek to 
     collect their debts.
       The National Women's Law Center analysis includes without 
     specification that the support ``provisions fail to insure 
     that support payments will come first, ahead of the increased 
     claims of the commercial creditors.'' Professional support 
     collectors, on the other hand, have no trouble in 
     understanding how this bill will enhance the collection of 
     support ahead of the increased claims of commercial 
     creditors. To them, such creditors are irrelevant outside the 
     bankruptcy process. And in light of the treatment of domestic 
     support obligations as priority claims under current law and 
     the enhanced priority treatment of such claims in the 
     proposed legislation, this objection seems particularly 
     unfounded.
       Where support creditors are indeed at a disadvantage under 
     current law is during the bankruptcy of a support debtor. 
     Under existing bankruptcy law support creditors frequently 
     have to hire attorneys to enforce support obligations during 
     bankruptcy or attempt the treacherous task of maneuvering 
     through the complexities of bankruptcy process themselves. 
     Attorneys working in the federal child support program--
     indeed, even experienced family law attorneys--may find 
     bankruptcy courts and procedures so unfamiliar that they are 
     ineffective in ensuring that the debtor pays all support when 
     due. Ideally, procedures for the enforcement of support 
     during bankruptcy should be self-executing and uninterrupted 
     by the bankruptcy process. The pending bankruptcy reform 
     legislation goes far in this direction. To suggest that women 
     and children support creditors are not vastly aided by this 
     bill is to ignore the specifics of the legislation.
       In the first place support claims are given the highest 
     priority. Commercial debts do not have any statutory 
     priority. Thus when there is competition between commercial 
     and support creditors, support creditors will be paid first. 
     And, unlike commercial creditors, support creditors must be 
     paid in full when the debtor files a case under chapter 12 or 
     13. Unlike payments to commercial creditors, the trustee 
     cannot recover as preferential transfers support payments 
     made during the ninety days preceding the filing of the 
     bankruptcy petition, and liens securing support may not be 
     avoided as they may be with commercial judgment liens. Unlike 
     commercial creditors, support creditors may collect their 
     debts through interception of income tax refunds, license 
     revocations, and adverse credit reporting, all--under this 
     bill--without the need to seek relief from the automatic 
     bankruptcy stay.
       In addition, support creditors will benefit--again, unlike 
     commercial creditors--from chapter 12 and 13 plans which must 
     provide for full payment of on-going support and unassigned 
     support arrears. Further benefits to support creditors which 
     are not available to commercial creditors is the security in 
     knowing that chapter 12 and 13 debtors will not be able to 
     discharge other debts unless all postpetion support and 
     prepetition unassigned arrears have been paid in full.
       Finally, and most importantly, support creditors will 
     receive--even during bankruptcy--current support and 
     unassigned arrearage payments through the federally mandated 
     earnings withholding procedures without the usual 
     interruption caused by the filing of a bankruptcy case. Like 
     many other provisions of the bill, this provision is self-
     executing, the bankruptcy proceeding will not affect this 
     collection process. Frankly, and contrary to the assertions 
     of the National Women's Law Center, it is difficult to 
     conceive how this bill could better insure that ``support 
     payments will come first, ahead of the increased claims of 
     the commercial creditors.''
       The National Women's Law Center states that some 
     improvements were made in the Senate Judiciary Committee. 
     This organization may wish to think twice about that 
     conclusion. What the Senate amendments did was to distinguish 
     in some cases between support arrears that are assigned (to 
     the government) and those that are unassigned (owned directly 
     to the parent). The NWLC might have a point if assigned 
     arrears were strictly government property and provided no 
     benefit to women and children creditors. However, upon a 
     closer look, arrears assigned to the government may greatly 
     inure to the benefit of such creditors.
       In the first place the entire federal child support program 
     was created to recover support which should have been paid by 
     absent parents, but was not. Such recovered funds became and 
     remain a source of funding to pay public assistance benefits, 
     especially by the states which contribute about one half of 
     the costs of such benefits.
       More directly significant, however, is the fact that under 
     the welfare legislation of 1996 (the Personal Responsibility 
     and Work Opportunity Reconciliation Act) support arrearage 
     assigned to the government and not collected during the 
     period aid is paid reverts to the custodial parent when aid 
     ceases. This scenario will become increasingly common in the 
     very near future as the five year lifetime right to public 
     assistance ends for individual custodial parents. In such 
     cases this parent will face the double whammy of being 
     disqualified from receiving the caretaker share of public 
     assistance and--because of the Senate amendments--not 
     receiving arrears or intercepted tax refunds because they 
     were assigned at the time the debtor filed for bankruptcy 
     protection.
       In addition, prior to the Senate Judiciary Committee 
     amendments a debtor could not obtain confirmation of a plan 
     if he were not current in making all postpetition support 
     payments. The advantage of this scheme was that it was self-
     executing. Under the Senate amendments a debtor may obtain 
     confirmation even when he is not paying his on-going support 
     obligation. He is only required to

[[Page S11439]]

     provide for such payments in his plan. In such cases it will 
     then be the burden of the support creditor to bring a 
     bankruptcy proceeding to dismiss the case if the debtor stops 
     paying. While this procedure is a welcome addition to the 
     arsenal of remedies available to support creditors, it should 
     not have supplanted the self-executing remedy which required 
     the debtor to certify he was current in postpetition support 
     payments before the court could confirm the plan.
       While the Senate version of bankruptcy reform should 
     certainly be amended to restore the advantages of the earlier 
     draft, it does, even in its present form, provide crucial 
     improvements in the protections and advantages afforded 
     spousal and child support creditors over other creditors 
     during the bankruptcy process. These improvements will ease 
     the plight of all support creditors--men, women, and 
     children--whose well-being and prosperity may be wholly or 
     partially dependent on the full and timely payment of 
     support. Congress has created the federal child support 
     program within title IV-D of the Social Security Act. It is 
     the opinion of those whose job it is to carry out this 
     program that the Bankruptcy Reform Act provides the long 
     overdue assistance needed for success in collecting money 
     during bankruptcy for child and spousal support creditors.
       Most of the concerns raised by the groups opposing the bill 
     do not, in fact, center on the language of the domestic 
     support provisions themselves. Instead they are based on 
     vague generalized statements that the bill hurts debtors, or 
     the women and children living with debtors, or the ex-wives 
     and children who depend on the debtor for support. It is 
     difficult to respond point by point to such claims when they 
     provide no specifics, but they appear to fall into two 
     categories.
       The first suggests that the reform legislation will result 
     in leaving debtors with greater debt after bankruptcy which 
     will ``compete'' with the claims of former spouses and 
     children. As discussed above there is little likelihood that 
     such competition would adversely affect the collection of 
     support debts. In any event the bill does little to change 
     the number or types of nondischargeable debt held by 
     commercial lenders. it will slightly expand the presumption 
     of nondischargeability for luxury goods charged during the 
     immediate pre-bankruptcy period and will make debt incurred 
     to pay a nondischargeable debt also nondischargeable. It is 
     doubtful that either provision will, in reality, have much 
     effect on the vast majority of ``poor but honest'' debtors 
     who do not use bankruptcy as a financial planning mechanism 
     or run up debts immediately before filing for bankruptcy in 
     anticipation of discharging those obligations.
       The second contention is presumably directed at a number of 
     provisions in the bill that are designed to eliminate 
     perceived abuses by debtors in the current system. The 
     primary brunt of this attack is borne by the so-called 
     ``means testing'' or ``needs based bankruptcy'' provisions 
     which would amend the current language of Section 707(b). 
     Most of the opposition appears to stem from the notion 
     that means testing would be a wholly novel proposition. 
     Such a conclusion is plainly incorrect. Virtually every 
     court that has ever considered the issue holds that 
     Section 707(b) already includes a means test or, more 
     accurately, a hundred or a thousand means tests, one for 
     each judge who considers the issue. The current Code 
     language sets no standards or guidelines for applying this 
     test, thus leaving the outcome of a motion subject to the 
     unstructured discretion of each bankruptcy judge. The 
     proposed bankruptcy reform legislation attempts to 
     prescribe one test that all courts must apply.
       The precise terms of that standard have been under constant 
     revision since the bankruptcy reform bills were introduced 
     last year, and undoubtedly they will continue to be fine-
     tuned to ensure that they strike a balance between preventing 
     abuse and becoming unduly expensive and burdensome. But mere 
     opposition to any change in the present law, and vague claims 
     that any and all attempts to address such existing abuses as 
     serial filings are oppressive and will harm women and 
     children, does nothing to advance the dialogue. And worse, 
     the critics appear content to sacrifice the palpable 
     advantages which this legislation would provide to support 
     creditors during the bankruptcy process for defeat of this 
     legislation based on vague and unarticulated fears that women 
     will be unfairly disadvantaged as bankruptcy debtors. In more 
     ways than one the critics would favor throwing out the baby 
     with the bath water. No one who has a genuine interest in the 
     collection of support should permit such inexplicit and 
     speculative fears to supplant the specific and considerable 
     advantages which this reform legislation provides to those in 
     need of support.
           Yours very truly,
                                                Philip L. Strauss,
                                      Assistant District Attorney.

  Mr. GRASSLEY. Mr. President, listen to the people who actually know 
how it is in the trenches collecting child support. Don't listen to 
inside-Washington special interests. Don't listen to academics who have 
no real world knowledge on this subject.
  I would add a word about cracking down on the very wealthy 
individuals who abuse the bankruptcy system. If you listened to the 
Senator from Minnesota last night, you might have had the impression 
that the Homestead exemption is a giant loophole that this bill does 
not deal with. We have had the General Accounting Office look at the 
question of how frequently the Homestead exemption is abused by wealthy 
people in bankruptcy. The General Accounting Office found that less 
than 1 percent of bankruptcy filings in States where there are 
unlimited Homestead exemptions involving homesteads of over $100,000. 
That means 99 percent of bankruptcy filings were not abusive. So this 
is not a loophole. We might say it is a little tiny pinhole.
  But there is a real problem with very wealthy people filing for 
bankruptcy under chapter 11, which is the chapter of the bankruptcy 
code normally left for corporations. Because chapter 11 is not designed 
for individuals, there are numerous loopholes that allow the wealthy to 
live high on the hog while paying nothing to their creditors. This bill 
before the Senate fixes this very major problem so these wealthy people 
will know they are no longer going to get off scot-free.
  This bill combats abuse wherever we find it. The Homestead exemption 
is capped at $500,000 for homes purchased within 2 years prior to the 
declaration of bankruptcy. The chapter 11 loophole is closed. This is 
what real reform is all about.
  In sum, in this conference report we preserve the proconsumer 
amendment adopted in the Senate. We crack down hard on abuses by the 
wealthy. We help child support claimants in a very major way. This bill 
is good for the American consumer.
  I yield the floor.
  The PRESIDING OFFICER. Under the previous agreement, the Chair 
recognizes the Senator from Alabama.
  Mr. SESSIONS. Mr. President, I thank Senator Grassley for his 
tremendous leadership on this bill. As he has said so plainly and 
effectively, that anyone who is concerned about consumer problems, 
debtors, fraud and abuse, and who does not believe this bill is an 
improvement over current law, has not read the bill.
  I am going to talk about some of those things. This bill makes 
progress in virtually every area over current law. Senator Grassley has 
patiently, for over 3 years, gone through hearings in the Judiciary 
Committee, on which I have been honored to serve, in his subcommittee, 
on the floor of this Senate, in conferences, committees, and meetings 
trying to eliminate every possible objection anyone could have to this 
bill.
  When we get to this point after having tremendous votes--over 90 
votes, one time 97-1 we passed this legislation--and we still have not 
made it law because a few dedicated people are threatening to hold it 
up and the President has indicated he may veto this bill that makes 
real progress in protecting consumers and fair and just legal dispute 
resolution.
  Bankruptcy law is operative in Federal court. It is presided over by 
a Federal bankruptcy judge, not an Article III judge that presides over 
Federal district court, but a Federal judge nevertheless. All the laws 
used in this court, unless the Federal law says otherwise, are federal.
  There was a Bankruptcy Reform Act passed by Congress in 1978. We have 
had no significant reforms since then. During the time since 1980, just 
2 short years after the passage of that act, there were 330,000 
bankruptcy filings. In 1998, there were 1.4 million bankruptcy 
filings--a 423-percent increase during a time of unprecedented economic 
growth and prosperity.
  What is happening? Certainly it is time for us, as good stewards of 
American legal policy, to take a minute to find out what is happening 
in bankruptcy court, to see what the abuses are and what loopholes 
clever lawyers are now using--to see if we can't improve it and make it 
fairer and better for all concerned. We absolutely can do that. That is 
why this legislation, essentially as it is today, has repeatedly passed 
the House and the Senate with overwhelming majorities. It passed the 
Judiciary Committee 15-3 and 16-2. That is why it ought to pass today.
  It is absolutely stunning to me that we are at a point where this 
bill may not pass because of the misinformation and politics that is 
happening here. There are now 3,474 bankruptcy filings per day. This 
chart shows the increase

[[Page S11440]]

in filings subsequent to the Bankruptcy Reform Act of 1978. It shows a 
tremendous increase. We are not making up these numbers. There are a 
lot of reasons for it.
  Actually, what has happened is that a cottage industry has sprung up. 
Turn on your TV, turn on your cable channels, look in your newspapers. 
You will see the ads: ``Lawyers: Wipe out your debts. Got problems 
paying your debts? Call old Joe the attorney, he will take care of you. 
He will save you rent. You can get out of paying rent.'' All of a 
sudden people are doing that.
  In fact, here is an ad in one paper--and I am going to talk about it 
a little later--``7 months free rent,'' just call your old buddy the 
bankruptcy lawyer. ``We guarantee you can stay in your apartment or 
house 2 to 7 months more''--that means more than you would get under 
eviction rules of the State which protect tenants from being evicted 
unfairly--``more without paying a penny. Find out how. We can stop the 
sheriff or the marshal.'' Call old John your bankruptcy lawyer. This 
bill ends a host of abuses. It will greatly benefit women and children 
in their child support and alimony, and those facts cannot be denied.
  Let me talk about some of the complaints we have heard first. They 
say this is a procedural unfairness; that this is a bizarre way we have 
done this, unprecedented, and unfair. We have had this bill up and 
about for 3 years. It has been debated in so many different ways. It is 
now part of the embassy security bill which is not at all unusual for 
one piece of legislation to be made a part of another piece of 
legislation as it passes through the Senate.

  The Senate rules allow for that to happen and for it to come forward 
as a conference bill if the House has voted on it. The House has voted 
on it and voted in favor of this bill. The House acted on October 12. 
It is perfectly proper for it to be in the form it is.
  There have been statements made that we have not had a chance to 
amend or that we have not had full discussion. There has been constant 
discussion. There has been agreement time and again to amend it. 
Senator Kohl, a member of the Democratic Party who worked hard on this 
bill, and I battled to improve the homestead law. We did not get all we 
wanted, but we made substantial progress. The homestead law in this 
legislation is significantly more fair than the unlimited homestead in 
current law, and if we do not pass the bill, current law will remain in 
effect, and the homestead abuses will continue unchecked; whereas, this 
bill eliminates the most serious homestead law abuses.
  That cannot be denied. I do not understand. We are almost in 1984 
land. Is it perfect? Is it the enemy of the good? Yes, I would have 
liked to have made more progress. I debated it on this floor. I argued 
for reform. A number of States have laws that would be overridden by 
changes I would like to see, and they fought tenaciously to hold on to 
their own laws. We had to make some compromises to move this bill 
forward, though, and I think we have made substantial progress. If 
anybody is concerned about the homestead law, why in the world would 
they vote to keep an old bill and not pass this new bill which improves 
the homestead provisions. Senator Biden, a member of the Judiciary 
Committee who was intimately involved in this bankruptcy law, was the 
ranking member of this conference committee. He voted to bring the bill 
out to this floor in the form we are in today.
  Senator Kennedy raised an odd objection. He claims he is worried 
about poor people, but he wanted to put in language that would allow 
pensioners who had millions of dollars in their pension accounts--no 
matter how much they had in there--to keep that money and to not have 
to pay the guy who put the roof on their house when they filed for 
bankruptcy. They could file for bankruptcy and keep everything in their 
pension account, even if it was millions of dollars.
  Senator Grassley and I thought that was an unfair advantage to the 
rich. We wanted to cap the amount of money that could be kept in a 
pension account. If you had a reasonable amount, $1 million, $750,000, 
whatever the amount would be, we tried to contain it at a reasonable 
amount. Why should a person keep $2 million in a pension account and 
not pay his doctor, not pay the local hospital, not pay the man who 
fixed his roof, not pay the guy who repaired his car or his brother-in-
law who loaned him money? Why should that happen? That is not fair, but 
that is what Senator Kennedy wanted. He pushed for it and, as a 
compromise--in fact, it does not happen that often--we agreed to 
concede to that. To say that we were not making changes at the last 
minute is really strange.

  Senator Schumer is going to vote against the bill if it does not have 
his abortion clinic language in it; when, in fact, it does not have 
abortion clinic language in it now. And he is not going to get it in 
there because it is an unfair targeting of one group of wrongdoers. He 
will not agree to have broad-based language, as I would support, and 
others will. So everybody is losing. The perfect becomes the enemy of 
the good.
  Let me mention this. In the 105th Congress, 2 years ago, the House 
passed this bill 306-118. It passed the Senate September 23, 1998, 97-
1. In the 106th Congress, in May, the House voted 313-108 to pass this 
bill--an even higher vote. In the Senate, we voted in February of this 
year, 83-14, to pass this bill.
  It has broad bipartisan support. It is a tremendous step forward. Why 
in the world we are having the difficulties we are in having to 
overcome a filibuster remains difficult for me to understand.
  I want to talk a little bit about the homestead situation.
  The Federal bankruptcy law says, with regard to how much money you 
can protect as your homestead will be determined by State law.
  In Alabama, the State says you cannot keep more than $5,000 in your 
homestead. If you have more than $5,000 equity in your house, you need 
to go refinance it and use that money to pay the people the debts that 
you owe them. Why should you keep it and not pay your debt if you have 
this money?
  In Texas, they say you can have an unlimited homestead exemption; 
also in Florida, Kansas, and several other States there is an unlimited 
homestead exemption. They did not want to give that up. I think it is 
an abuse.
  We have an example of people leaving New York to go to Florida and 
buying a multimillion-dollar mansion on the beach, pumping all their 
assets into it, holding off creditors for a few months, and then filing 
bankruptcy, wiping out what they owe to everybody; and they are free to 
sell their million-dollar mansion and use the million dollars to live 
high and carefree for the rest of their days. That is not right.
  So we dealt with that. It was not easy. We had a lot of people here 
who did not want to change that privilege of a State to set that 
homestead exemption.
  In Alabama, you can, for example, move from Mobile to Pensacola, FL--
50 miles away--put all your money in a multimillion-dollar house on the 
beach and defeat your creditors. That is not right, either. So we tried 
to do better. We came up with language that would stop that. Senator 
Kohl and I debated it right here.
  This legislation provides for a 7-year look-back. If you can prove 
that a person moved to a State to gain preferential homestead 
treatment, and he moved assets into a house in order to file bankruptcy 
and defeat creditors, and if that happened within 7 years, you could 
set that aside. That is a big step forward--a big step to attack the 
most blatant fraud that occurs in this area. This provision is in the 
legislation.
  By passing this legislation, we can stop this abuse right now. If we 
do not pass the legislation, we will be allowing this abuse to 
continue.
  Let me talk about another very real problem, a loophole, a source of 
abuse that is causing problems and is very common.
  People are using Federal bankruptcy laws to hold over on expired 
leases. That is a lease whose term is 1 year, and they are already 
beyond that 1 year. They have not paid their rent. It has been 
terminated, without the debtor paying rent, just like this ad refers 
to.
  The sheriff of Los Angeles County has really spoken out aggressively 
on this. He said: ``3,886 people filed bankruptcy in Los Angeles County 
in 1996 alone in order to prevent the execution of valid, court-issued 
eviction notices.''

  As this ad says: ``We can stop the sheriff and the marshal and get 
you

[[Page S11441]]

more time.'' You do not have to pay your rent. You do not have to pay 
maybe the lady who has two duplexes and it is her retirement income. 
You do not have to pay that. You can rip her off for 7 months. Just 
listen to us.
  How does it happen? It does happen. Judge Zurzolo, in In re Smith, a 
Federal bankruptcy judge in Los Angeles, wrote this:

       . . . the bankruptcy courts in the Central District of 
     California are flooded with Chapter 7 and Chapter 13 cases 
     filed solely for the purpose of delaying unlawful detainer 
     evictions. Inevitably and swiftly following the filing of 
     these bankruptcy cases is the filing of motions for relief of 
     the Stay by landlords who are temporarily thwarted in this 
     abuse of the bankruptcy court system.

  In other words, what happens? They file bankruptcy. The landlord is 
seeking to evict them. They file a motion in the bankruptcy court to 
stay the landlord from proceeding with his eviction until the 
bankruptcy case is completed. Then the landlord has to go and hire a 
lawyer to file a motion to say that this isn't a valid use of the stay. 
A stay only protects you in an asset. If your lease has expired, it is 
not an asset. If it is not an asset, the court cannot protect it. It is 
the landlord's; it is not the tenant's, if the lease has expired.
  So what happens? Mr. President, 3,886 of those were filed, according 
to the sheriff, simply for that purpose--to get this unfair extension 
of time without paying rent.
  How we have a law in this country that promotes and allows this kind 
of abuse is beyond me.
  The truth is when the landlord files these motions, he always wins 
because the lease has expired or it has been legally terminated, and as 
such the tenant does not have any property. He does not have an 
interest to be protected. It is the landlord's property, not the 
tenant's. It costs the landlord a lot of money; and a lot of months and 
weeks go by while he waits to be returned to rightful possession. The 
current law is abusive to these law-abiding landlords. We can help 
them--we can improve on current law--and we should. This bill provides 
that help.
  It also allows, of course, all the State protections for eviction 
that every State provides.
  California provides a lot before you can be evicted from an apartment 
or house. As the judge says: Contrary to the false representations made 
by these ``bankruptcy mills''--he is talking about this cottage 
industry of lawyers and advertisers who run this stuff--despite their 
representations, the debtor/tenants usually only obtain a brief respite 
from the consummation of the unlawful detainer convictions, after 
having paid hundreds of dollars to the lawyers. That is what the judge 
said.
  There are 50,000 bankruptcies a year filed in the Central District of 
California. The judge says:

       The mountain of paperwork that accompanies the thousands of 
     abusive ``unlawful detainer'' case filings places an 
     unnecessary burden on our already overworked and under-
     compensated clerk's office. Of course this mountain of 
     paperwork flows from our clerk's office to the chambers of 
     our judges when landlords file their relief from Stay 
     motions. Because of the increased workload caused by these 
     blatantly abusive unlawful detainer case filings, our court 
     has had to establish special procedures dismissing these 
     cases as quickly as possible so that the court's dockets and 
     the clerk's files will not become more choked with paperwork 
     than they already are.

  I am not saying this. This is a Federal judge saying this, who deals 
with these cases every day. I am quoting:

       These relief from stay motions are rarely contested and 
     never lost as long as the moving party provides adequate 
     notice of the motion and competent evidence to establish a 
     prima facie case.

  Well, how did this arise? How could such happen? Bankruptcy provides 
for an automatic stay. If someone is suing you and you file bankruptcy, 
you don't have to go to court and defend all those cases where you have 
not been able to pay your debts on time and a bunch of people sue you. 
If you go into bankruptcy, everything stops. You have only to answer to 
the bankruptcy judge who sorts out all these legal problems and tells 
you whom to pay and how much to pay. An expired lease does not 
constitute an asset of a bankruptcy estate, as the courts have plainly 
held. That is what this language says, and it will stop this abuse from 
continuing unchecked and spreading around the rest of the country as 
more and more of these bankruptcy mills are created.
  It is expensive for the landlord to do this. He has to hire an 
attorney. Weeks go by. Maybe the lease was up. Maybe the mother wanted 
to turn the apartment over to her daughter to live in and the lease was 
up in January. She starts trying to get the person out, and come March 
or April or May or June, the person is still there. She has had to file 
for eviction. Then they get a lawyer who stays it for all this kind of 
time and really costs individuals a lot of money. There are 7, 8, 9 
months without rent being paid and all the while the attorney's fees 
are adding up. This scenario is a real problem that this legislation 
fixes.
  What about women and children? There have been suggestions that 
somehow women and children are disadvantaged under this legislation. 
Nothing could be further from the truth.
  Priority payment: Under current Federal law, child support and 
alimony payments are seventh in the list of priority debts that must be 
paid off in a bankruptcy proceeding. Incidentally, what do you think is 
No. 1? Attorney's fees. In this bankruptcy business and industry, who 
has been roundly critical of this legislation and who has lobbied their 
buddies around this Senate telling them this is such a bad piece of 
legislation? Who is going to have to change their ways? The lawyers. 
They don't get No. 1 priority over child support any longer, under this 
bill, and that makes them nervous.
  What do I mean by No. 1? Often people who file bankruptcy do have 
certain assets. Those assets are brought into the bankruptcy estate and 
added up. Let's say there is $5,000 of assets and $50,000 worth of 
debts. The bankruptcy judge starts paying off. Under the old law, the 
current law today, if the bankruptcy attorney's fee is $5,000, he gets 
it all. He has to go down six different steps, paying off six different 
groups of creditors, before he gets to child support and alimony. We 
say, if there is $5,000 in the estate and there is child support money 
owed, the child support money gets paid first out of that, and alimony.
  How anyone can say that that is unfair to women and children is 
beyond me. It is beyond comprehension. Those who say that are not 
right. This is historic change to the benefit of women and children. 
Nobody can dispute what I have just said about that. It is plain fact. 
Let me say some other things it does.
  This legislation requires that a parent who is filing bankruptcy--
let's say a father, deadbeat dad, files for bankruptcy--must fulfill 
past due and current child support before he can get discharged from 
bankruptcy. The court is going to monitor him to make sure he is paying 
his child support. If he is not paying his child support, the court 
will not give the final discharge that wipes out his debts. He has to 
take care of his children first.
  It also will ensure that custodial parents, the parents who have the 
custody of the children, get effective and timely assistance from child 
support agencies. It requires the bankruptcy trustee or administrator--
that is, this new law we are proposing and asking to be passed--to 
notify both the parent and the State child support collection agency 
when the debtor owing child support or alimony files for bankruptcy. In 
other words, a mother may not know that her ex-husband or the father of 
her child who lives in a distant State is even filing bankruptcy. What 
this says is, the mother has to be told; not only that, the State 
collection agency which is helping mothers collect the money has to be 
told so that they can intervene and make sure the child is protected.

  It will provide timely and valuable information to parents to help 
collect child support.
  Jonathon Burris of the California Family Support Council, a group 
that tries to protect mothers and children, wrote in an open letter to 
Congress that the provisions in this bill are ``a veritable wish list 
of provisions which substantially enhance our efforts to enforce 
support debts when a debtor has other creditors''--and they always have 
other creditors--``who are also seeking participation in the 
distribution of the assets of a debtor's bankruptcy estate.''
  Phillip Strauss of the District Attorney Family Support Bureau wrote 
the Judiciary Committee. I was Attorney

[[Page S11442]]

General of Alabama. I was involved in this. States have district 
attorneys associations. They can intervene on behalf of women and 
children to make sure child support is being paid and that the money is 
being collected. That is what he does full time.
  He recently wrote the Judiciary Committee. This is a man whose 
business full-time is collecting money for children. He wrote our 
committee to express his unqualified support for this bill.
  Mr. Strauss notes that he has been in the business of collecting 
child support for 27 years. He knows what he is talking about. He also 
notes that the National Child Support Enforcement Association, a 
national group of which he is a part, and the National District 
Attorneys Association and the Western Interstate Child Support 
Enforcement Council agree with him and support this legislation.
  There has been this big talk about how this harms families. Let me 
describe an amendment I added that I think would be of tremendous 
benefit.
  Mr. President, how much time do I have remaining?
  The PRESIDING OFFICER. One minute.
  Mr. SESSIONS. Mr. President, I ask unanimous consent for an 
additional 7 minutes.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. SESSIONS. One of the things I have learned is that within every 
community in America there are agencies called credit counseling 
agencies. They sit down with families who have debt problems. They sit 
around a table. They even get the children in. They talk about what the 
income is, how much the debts are, how much current living expenses 
are. They help them establish a budget.
  Some of them will even receive the money and pay the current debts 
regularly. They call up the banks and credit card companies and other 
people and ask for modifications of the payment schedule, a reduction 
in interest rates, and that sort of thing. They are very successful. 
They help families get mental health counseling if that is needed. They 
help families get treatment for gambling problems or drinking problems 
or drug problems. They help families--not like these mills, these 
bankruptcy mills, where people respond to an ad, a lawyer says they 
need so much money, and they say: I don't have this much money. The 
lawyer says to them--I am not exaggerating here--Use your credit card. 
Put all your bills on the credit card. Bring me your paycheck and pay 
me my fee. Don't pay anything else. Then we will file bankruptcy, and 
we will wipe out all those debts. So they get that.
  They have a little clerk or a secretary or a paralegal who fills out 
the bankruptcy form. He doesn't see him again until they come to court. 
He shows up. They present their petition, and eventually the debts are 
wiped out. And they don't know the names hardly of the people with whom 
they are dealing. They have no concern or empathy to really deal with 
the problems in that family. And we also know, from statistics, that 
the largest cause of marital breakup in America is financial problems. 
We need to do better about that.

  So I offered an amendment that has been accepted, and everybody seems 
to be pleased with it--except some of the lawyers--and that is to say 
that every person, before filing bankruptcy ought to talk with a credit 
counseling agency to see if what they offer might be better than going 
through bankruptcy--no obligation, just talk to them.
  I think a lot of people are going to find that they have other 
choices than just going to bankruptcy court. Some people need 
bankruptcy. We are not trying to stop bankruptcy. Some people need it 
to start over again--but not everybody. A lot of people can work their 
way through it with the help of a good credit counseling agency. I 
think this is a tremendous step forward. I am very excited about it, 
and I believe it will offer a lot of help to people struggling with 
their budgets today.
  Now we have had a most curious development. We have had Senators for 
the last 2 years come down on this floor and go forward with the most 
vigorous attacks on credit card companies. Do you know what it is they 
say they do wrong? They say they write people letters and offer them 
credit cards. They say this is some sort of an abuse, some sort of 
preying on the poor, to offer people credit cards.
  I am telling you, we have laws that this Congress has passed--banking 
laws and other rules--that say you can't deny credit to poor people 
unless you have a serious, objective reason to do so. Why in the world 
would we want to pass a law that would keep MasterCard, Visa, or 
American Express from writing somebody and saying: If you take my 
credit card, your interest rate will be such and such, and you can have 
6 months at 3 percent interest--or whatever they offer--and if you want 
to change from the one you have, we have a better deal?
  What is wrong with that? We often have competition. Interest rates, 
in my opinion, for credit cards are too high. I am too frugal to have 
much money run up on my credit card if I can avoid it. I don't like 
paying 18 or 20 percent interest. What is wrong with offering people an 
opportunity to choose a different credit card? If these companies were 
refusing poor people and would not send them notices of the 
opportunities to sign up, I suppose we would be beating them up and 
saying they are unfair to poor people or they are redlining them and 
cutting them off. I wanted to say that. To me, that is sort of bizarre.
  Second, this is a bankruptcy court reform bill. We are here to deal 
with the process of what happens when a person files for bankruptcy. We 
are not here to reform banking laws and credit card laws that are 
within the jurisdiction of the Banking Committee. That committee 
considers that. It is really not a bankruptcy court problem, 
fundamentally.
  But what have we done in order to get support for this bill and 
answer questions? We made a number of consumer-friendly amendments in 
this bill to satisfy those who have complained. Of course, as soon as 
you give them something, they are not happy, and they say you are 
defending the evil credit card companies; that is all you are doing, 
they say.
  I am trying to create a rational way for people who can't pay their 
debts to go to court and wipe out their debts, but not rip off people 
whom they can pay because they have the money to pay. So we have a 
minimal credit warning, a toll-free number so debtors can find out 
information about their records. That will be required of credit card 
companies.
  There are a lot of good things here that are not in current law. So 
to not pass this bill will eliminate the steps we have made to put more 
limits and controls on credit card companies. Without a doubt, that is 
true. They might like to have a whole rewrite of credit card law in the 
bankruptcy bill, but that would be inappropriate. I think we have made 
steps in the right direction and we should continue in that direction.

  As Senator Grassley noted, there are terrific benefits for farmers 
under chapter 12. Chapter 12 provisions give additional benefits to 
farmers who file bankruptcy, and it expires this year. By not passing 
this bill, we are going to throw away the added protections that 
farmers have. How is that helping poor people and consumers? How does 
it help those who are having trouble with credit cards to vote down a 
bill that provides more demands on credit cards?
  These are just a few ways, Mr. President, that this legislation 
improves current bankruptcy law. If time permitted, there are many more 
improvements that I would like to share with the members of this body.
  In conclusion, I would just like to say that this bill includes many 
protections for women and children. It provides a long-overdue 
homestead fix, credit counseling, help for the family farmer and many 
other worthy provisions. A vote for this bill is a vote for much-needed 
change in the bankruptcy law in this country. As such, I strongly urge 
my colleagues to vote in favor of this bill.

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